Developer-imposed purchase agreements challenged

It has become common practice in Toronto for some developers to require
condominium purchasers in each building to contribute to the costs of guest
suites, superintendent s units, carwash bays, car share units and similar
amenities.

Typically, the total price for these units is between $250,000 and $500,000
per project, and the cost is amortized over 10 or 15 years with interest at 4
per cent above the 10-year Canada Bond rate.

Instead of the charges for these facilities being buried in the purchase
price of each condominium unit, they are added to the monthly common expenses
for a decade or more after closing. As a result, over a period of years, each
condominium buyer can expect to pay a total of perhaps $1,000 to $1,500 in
addition to the purchase price. The cost varies with the price of the units and
the applicable interest rate.

Although the added charges are set out in the small print of the condominium
disclosure statements, they are not referred to in the purchase agreements, and
in my experience, never mentioned in sales offices.

This practice may soon end in the wake of a decision of Justice Julie A.
Thorburn last year, in a case involving condominium developer Lexington on the
Green Inc., and the unit owners of Toronto Standard Condominium Corp. 1930.

Lexington on the Green is a project on Lawrence Ave. W., in the Weston
Village area. The registered condominium declaration required the condominium
corporation (consisting of the new unit owners) to purchase from the developer a
management unit, plus one parking space and a locker for $240,000.

This purchase obligation was also set out in the disclosure statement given
to each buyer.

Acting under this requirement in May 2008, the developer-controlled board of
directors passed a bylaw requiring the condominium corporation to buy the units,
and the board signed a purchase and sale agreement with the developer.

Seven months later, a turnover meeting was held, and the new owners elected
a board of directors to replace the developer s board.

In March of last year, the new board passed a resolution to terminate the
purchase and sale agreement and end its obligation to buy the management unit.
When the developer was notified, it applied to the Superior Court to determine
whether the purchase agreement was binding.

Section 112 of the Condominium Act states that a condominium board may
terminate an agreement for the provision of facilities to the corporation on
other than a non-profit basis if the agreement was entered into before the
turnover meeting and the election of the new board.

The Act also says that if any provision in a condominium declaration is
inconsistent with the legislation, the Act prevails and the declaration is
deemed to be amended accordingly.

Justice Thorburn heard the arguments of both sides and dismissed the
developer s application. She ruled that the unit owners did not have to buy the
resident manager s unit.

The judge concluded that the Ontario legislature intended to allow a board of
directors to terminate an agreement for the provision of facilities or units in
cases like this one if the termination is made within 12 months of the turnover
meeting to the new board.

The parties were back in court in December. They agreed on an order to amend
the condominium declaration to delete parts of the declaration requiring the
corporation to buy the management unit, and to allow the unit owners to use the
suite for the purposes permitted by the legislation. The unit owners were
awarded costs of $7,250.

Thousands of condominium units are now under construction in the GTA, and the
disclosure statements in a great many of them contain similar requirements to
buy various units with payments spread out over many years.

Based on the Lexington on the Green case, it can be expected that incoming
condominium boards across the GTA, and those elected within the past year, will
be terminating these developer-imposed purchase requirements.

The cost savings to unit owners will be in the millions of dollars.

=============================================

Clarification - April 3, 2010

In this column on March 20 (above), I discussed the case of Lexington
on the Green, in which a new condominium corporation in its first year of
existence was able to back out of a $240,000 purchase agreement to buy a
management unit, parking space and locker from the project developer.

In many cases, however, title transfer to those units take place before
the developer turns over control of the condominium board of directors to
the new unit owners, and is not completed under a Lexington-type
agreement. If the transfer of title has already taken place and a mortgage
is registered in favour of the developer for the price of those units,
then there is no agreement to terminate and the purchaser-controlled board
is unable to unwind the transaction.

C O S T S E N D O R S E M E N T

[1]
This Application
was heard and an Order made dismissing the Application, on June 29, 2009.
The central issue on the Application was whether the Respondent was
required to purchase from Lexington, the ownership interest in the
Residence Manager Unit along with one parking and one locker unit. In the
Order, the Toronto Standard Condominium Corporation was not required to
purchase the ownership interest in the Residence Manager Unit along with
one parking and one locker unit. Lexington was, however, entitled to
damages in respect of occupation of the unit. The quantum of damages was
resolved by the parties on September 16, 2009.

[2]
Thereafter, on
October 9, 2009, the parties filed a Joint Submission in which they
proposed amendments to the Declaration of the Toronto Standard Condominium
Corporation. The parties suggest that paragraphs 1(u) and 28 of the
Toronto Standard Condominium Corporation Declaration be deleted in their
entirety, to take into account the Respondent s right to use the unit in
question in any manner consistent with the Condominium Act
S.O. 1998, c. 19, and without the additional restrictions contained in
those sections. I accept that Joint Submission.

[3]
The parties filed
costs submissions in writing to address costs of the Application. For the
reasons set out below, I order partial indemnity costs payable to the
Respondent, Toronto Standard Condominium Corporation in the amount of
$7,250.00.

[4]
Section 131(1) of
the Courts of Justice Act
R.S.O. 1990, c. C.43 sets out the Court s general discretion to award
costs as between parties to litigation. Rule 57.01(1) of the Rules of
Civil Procedure sets a non-exhaustive list of factors to be taken into
account in awarding costs including the time spent, the result achieved,
the complexity of the issues raised, the conduct of the parties, and any
other matter relevant to the question of costs. The case law has
developed such that the expectations of the parties concerning the quantum
of costs, is also a factor. (Zesta Engineering Ltd. v. Cloutier,
2002 CanLII 25577 (ON C.A.), 2002 CanLII 25577 (C.A.) at para. 4;
Boucher v. Public Accountants Council for the Province of Ontario,
2004 CanLII 14579 (ON C.A.), (2004), 71 O.R. (3d) 291 at para. 38.

[5]
The overall
objective is to fix an amount that is fair and reasonable for the
unsuccessful party in the circumstances. (Boucher, v. Public
Accountants Council for the Province of Ontario,
2004 CanLII 14579 (ON C.A.), (2004), 71 O.R. (3d) 291 at para. 26.)
The general rule is that a successful party is entitled to his or her
costs on a motion. (Blue Range Resource Corp. (Re),
2001 ABCA 177 (CanLII), (2001), 202 D.L.R. (4th) 523 (Alta. C.A.),
Ryan v. McGregor (1925), 58 O.L.R. 213 (App. Div).)

[6]
The Respondent
claims partial indemnity costs in the amount of $11,456.25 plus
disbursements and G.S.T. for a total of $12,659.76. This includes fees
for three junior counsel, a clerk, several articling students and Mr.
Gwynne.

[7]
The Applicant s
partial indemnity costs plus disbursements and G.S.T. are $7,226.96. The
Applicant submits that the Respondent s costs are excessive as they
contain considerable duplication of time among counsel and the
disbursements include fees relating to the issuance of a
counter-application that the Respondent did not proceed with.

[8]
This Application
was heard and determined in a few hours and was of moderate complexity.
The parties agree that the key issue was the interpretation of section 112
of the Condominium Act. The Respondent claims however that this
issue had not been addressed by the Court before, thereby requiring an
analysis of other sections of the Act as well as the Applicant s
documents.

[9]
The Applicant
submitted two affidavits in support of the Application, a factum and a
revised factum that contained four additional cases. The Respondent
submitted one affidavit. There were no cross-examinations. The issue was
of importance to both parties.

[10]
The Respondent claims
that the Applicant could have reduced its damages if it had agreed to
terms in the Respondent s letter of March 23, 2009. The Applicant claims
the terms were not the same as those ultimately agreed to by the parties
and in any event, this issue accounted for only a small portion of the
time expended on this Application. I agree that this issue accounted for
only a small portion of the time spent on this Application.

[11]
Given the agreement by
the parties that partial indemnity costs are appropriate in this case, the
moderate complexity of the Application, the short time spent to argue the
Application, the fact that there were no cross-examinations, that there
seems to be some duplication among the many junior counsel and students
working on the Respondent s material, and the Respondent s partial
indemnity costs, I order costs in the amount of $7,250.00 to be paid by
the Applicant to the Respondent forthwith.

___________________________

Thorburn J.

DATE:
December 23, 2009

Bob Aaron is a Toronto real estate lawyer. He can be reached by email at bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.Visit the Toronto Star column archives at http://www.aaron.ca/columns for articles on this and other topics or his main webpage at www.aaron.ca.